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Business News/ Companies / Bankers eye Coal India’s foreign asset purchase plan
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Bankers eye Coal India’s foreign asset purchase plan

Bankers eye Coal India’s foreign asset purchase plan

Short supply: A miner carries coal from a pit in Meghalaya’s Jaintia hills. India’s deficit of coal has risen by over 100 mt this fiscal year. By Brent Lewin/BloombergPremium

Short supply: A miner carries coal from a pit in Meghalaya’s Jaintia hills. India’s deficit of coal has risen by over 100 mt this fiscal year. By Brent Lewin/Bloomberg

New Delhi: Top investment bankers are eyeing the overseas asset purchase plan of Coal India Ltd, a person in the company said, but bankers say the company needs to learn from its failed attempts to buy foreign assets before trying again.

Short supply: A miner carries coal from a pit in Meghalaya’s Jaintia hills. India’s deficit of coal has risen by over 100 mt this fiscal year. By Brent Lewin/Bloomberg

The official, who did not want to be named, said consultants such as KPMG and PricewaterhouseCoopers were among those interested.

Coal India advertised for advisers for tax and accounting on 4 January after its quest for buying mining assets owned by US’s Massey Energy Co. and Peabody Energy Corp. and Indonesia’s Sinar Mas went cold after nearly two years of due diligence and talks.

Now, facing criticism for its under-productivity and hamstrung by social and regulatory issues that have crimped growth, Coal India is being pushed again for scouting overseas coal mines.

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Officials at KPMG and PricewaterhouseCoopers did not confirm whether they are applying to be Coal India’s advisor.

Other bankers, without wanting to be named, said they may apply. To make the process different this time, they said, the company needs to empower its overseas division Coal Videsh so that every decision needs not go to the board.

They also said that Coal India must widen its search and be open to more flexible transaction structures and pricing.

Besides, it must be prepared to pay higher valuations as the coal market remains tight despite an economic slowdown in most parts of the world, they said, given the resource shortages seen in the years ahead.

Bankers said Coal India has a set of advantages that it can leverage so it puts its best foot forward.

“As a government company, Coal India faces challenges in the negotiation process that requires decision-making on several critical issues within a short period of time," said Hiranyava Bhadra, partner, management consulting at KPMG. “Coal India can consider leveraging government-to-government contact programmes to plan the acquisition of coal assets. Opportunities exist in both developed and developing countries by jointly planning infrastructure development for evacuation and handling of coal from the source country to India."

Bhadra said that as a company responsible for supplying to varied coal users in India, Coal India also had the advantage of owning mines with any grade of coal, which meant its search could be broadened to looking at all types of coal assets.

The official in Coal Videsh said target countries for Coal India were Australia, the US, Indonesia and Africa, and now that the government has allowed it to look even for unlisted assets, it could have greater freedom in scouting for more assets.

“Our board is meeting on the 30th and the government’s policy change is likely to be adopted," the official said.

Of the companies Coal India was looking at until last year, it has lost Sinar Mas’s asset to GMR Energy, the official said. Massey Energy now belongs to US company Alpha Natural Resources Inc. and its proposal for an asset sale will have to be looked at afresh.

Regarding Peabody, Coal India has written to it, asking to bring down its rate of return of 12% for the asset that the Indian firm bid for, the official said.

“We have written to them saying we can’t consider an asset with an RoR (rate of return) of 12% and to bring it down. They have not responded yet," the official said.

The global economic downturn of 2008 and fresh signs of economic turmoil in Europe haven’t brought valuations to a bottom, bankers said.

With a resources scarcity in an increasingly populous world, mining assets are as pricey as before the slowdown, they said.

“The market for coal acquisitions is still very tight as large-size, developed assets are coming in limited numbers, while the demand from acquirers remains strong," said Kameswara Rao, executive director, energy, utilities and mining, at PricewaterhouseCoopers. “The assets coming into a formal sale continue to attract interest of Chinese state-owned entities, Indian companies, and other mining investors."

Coal India, the world’s largest coal miner, had to revise its target down to 440 million tonnes (mt) recently from 452 mt at the beginning of the fiscal year as regulatory bottlenecks in getting new mines, a workers’ strike and heavy rains hurt its growth.

The deficit of coal has increased by over 100 mt this fiscal year, yet all of this is unlikely to get imported owing to poor port infrastructure and other logistics issues. If Coal India does not buy mines overseas, the scarcity will become acute and threaten India’s economic growth.

Bhadra said the miner needed to adopt a “portfolio approach" to be in a perennial look for assets given the magnitude of the shortage.

ruchira.s@livemint.com

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Published: 29 Jan 2012, 09:47 PM IST
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